Trying to predict the next market correction? Barry Ritholtz has some advice for you: Don’t.
Investors spend a lot of time worrying about — and often acting on — the latest economic reports. But Barry Ritholtz says what they most often should do in such situations is nothing.
As the bull market has run longer and higher, many have been speculating about whether we’re nearing a market top. In a recent Bloomberg View column, Barry Ritholtz turns to Paul Desmond of Lowry’s Research — who has been analyzing markets for five decades – for some cold, hard data on the topic.
Are you an outcome-oriented investor, or a process-oriented investor? Barry Ritholtz says he’s the latter, and you should be too. Continue reading
After a huge decade-long runup, gold has tumbled in recent years, pounding portfolios of many gold bugs. “The mania for gold, like all manias preceding this one, is ending badly,” Barry Ritholtz of FusionIQ and The Big Picture blog explains in a Washington Post column. “And while gold may yet establish a comeback, much of the damage has already been wrought.”
Ritholtz says the gold bust is a good learning opportunity for investors, however, as it provides several broader lessons. Among them: Beware the narrative (investors get attached to powerful stories even after the facts change); don’t ignore history (no investment goes up forever); and don’t guess (unlike equities, gold has no fundamentals, so many tried to guess how its price would change based on nearly impossible to predict macro factors).
“The ups and downs of gold over the past 10 years are not unique,” Ritholtz says. “Like any other investment, people became emotionally involved with the trade. Mistake were made, money was lost.”
When it comes to market and economic forecasts, top strategist Barry Ritholtz has some advice: Ignore them.
“The simple truth is that, as a species, you humans are terrible about making predictions,” Ritholtz writes in a Bloomberg column. “Forget forecasting big events that are not in your control, such as the economy or the market, you cannot even forecast your own behavior. If you could, the fitness and diet industries would be bankrupt.”
Making predictions, Ritholtz says, can set the stage for dangerous behavioral biases. “The true danger of forecasting is not that you will be wrong — the odds are you will — but rather the natural tendency to stick to a forecast regardless,” he says. “Instead of adjusting to changing conditions, we have the odd tendency to marry the old prediction.”
Barry Ritholtz says that too many investors are underinvested in stocks, saying that the market rally has been “hated” by many. Ritholtz tells Bloomberg that pullbacks are a part of bull markets, but investors seem to take every minor pullback as a sign off disaster these days. He talks about how difficult it is to jump back into the market at the right time after you’ve jumped out. And he talks about how a myriad of factors drive the market — not just one, as the headlines often make it seem.
Though the government shutdown and debt deal drama are monopolizing the financial headlines, Barry Ritholtz of The Big Picture blog says it’s had little impact on his investing approach. And it will stay that way, he says — so long as the stalemate doesn’t last longer than a few weeks. Ritholtz tells Yahoo! Finance’s Daily Ticker about a study that looked at 17 past government shutdowns, and how stocks responded to them. He says that in most cases, the shutdowns were just a blip on the radar in terms of what they did to the market. “Where it becomes a concern … is if weeks turn into months,” he says. “If it goes past three or four weeks, that could take a big chunk off GDP, effect consumer confidence and really have an impact on earnings.” A big negative pull on earnings could mean a potential 20% to 30% decline for stocks, he says. If the standoff does last more than three or four weeks, Ritholtz says he’ll probably start lightening up on his equity holdings and looking at ways to hedge his portfolio. But until then, he appears to be staying the course.